U.S. distillers call for 'toasts, not tariffs' as trade war heats up
Industry insiders fear tit-for-tat trade measures will hit small producers hardest
Victor Yarbrough knew Canada meant business when he saw liquor stores in Ontario and other provinces pull bottles of U.S. spirits off the shelves last week.
"That was a shock, I believe," said Yarbrough, who founded and runs Brough Brothers Distillery in Louisville, Ky., with his brothers Bryson and Chris. "The message was heard on our end."
Brough Brothers, whose honey-coloured Kentucky bourbon is described as medium-bodied and features "fruity notes of green apple and pear" with "subtle hints of ginger and nutmeg," was in the midst of negotiations with the New Brunswick Liquor Corporation (ANBL) when the current trade war between Canada and the U.S. flared up.
Reacting to U.S. President Donald Trump's threat of 25 per cent tariffs on Canadian exports, Canada introduced its own list of counter-tariffs on March 4 that includes American whiskies, rum, vodka, gin and other spirits. In Ontario and other provinces, existing stock was quickly removed from the shelves of government-run liquor outlets and stored in boxes.
Brough Brothers, whose Kentucky bourbon is already available in 23 states and which is making forays into the European market, has had to put its Canadian expansion plans on hold.
Yarbrough says the on-again, off-again tariffs have caused "angst and anxiety" within the local industry, adding the uncertainty is the worst part.
"What's going to happen next?" he asked. "For us, it's negatively impacting us from a business perspective."
Yarbrough is also worried about the prospect of lingering resentment north of the border, and the damage it might do to his family's brand.
"From a marketing perspective, are Canadians going to be mad at us small bourbon producers?" he wondered. "I personally think it's beyond tariffs now, so do I need to come visit and shake some hands myself and say, 'Hey, we're working through this. Just give us another chance.'"
'Far-reaching consequences'
The Kentucky Distillers' Association warned last week that retaliatory tariffs and other punitive measures will have "far-reaching consequences" on the industry, which is estimated to directly and indirectly employ some 23,000 people in the state.
"Bourbon jobs are American jobs, and we grow bourbon jobs by opening markets across the globe," the association said in a statement. "Retaliatory measures against bourbon harm these markets and jeopardize growth for years to come, including the unjust and disproportionate removal of American spirits from retail shelves and prohibition on new purchases of alcohol from American companies."
In Ontario, Premier Doug Ford said some 3,600 American products would be removed from the LCBO. (U.S. imports account for nearly $1 billion of the Ontario retailer's $7 billion in gross annual revenues.)
During a conference call with investors last week, Lawson Whiting, CEO of the company that produces Jack Daniel's Tennessee Whiskey, called the move a "disproportionate response" to the tariff threat, even though exports to Canada account for just one per cent of the company's sales.
The removal of U.S. liquor from Canadian retailers is "worse than a tariff because it's literally taking your sales away," Whiting said.
WATCH | Some of the reaction from the U.S.:
'A lose-lose proposition'
Chris Swonger, president and CEO of the Distilled Spirits Council of the United States, also suggested the LCBO and other provincial retailers had gone too far by removing U.S. liquor from their shelves.
"I understand the strong emotion that is underway within our longtime partners and friends in Canada. This industry has nothing to do with that," Swonger told CBC on Friday.
"Pulling American spirits products off the shelves — I say it with great respect — is over the top, and doesn't really help Canada that much either, I'm afraid."
Swonger said his organization is in close talks with both its Canadian counterpart and the Trump administration in an effort to seek a solution and "let cooler heads prevail" before the industry on both sides of the border suffers collateral damage in the current trade war.
"Toasts, not tariffs," Swonger urged. "It doesn't accomplish anything, and it just creates a lose-lose proposition for two great industries that are connected and intertwined together."
Andy Beshear, Kentucky's Democratic governor, called the U.S. tariffs on Canadian exports a "bad idea" and placed the blame squarely on the White House.
"President Trump started this trade war, and we all knew that if he did other countries would have to respond," Beshear said last week.
Smaller distillers will suffer most
Mark Rucker, a Kentucky-born attorney whose website and podcast The Bourbon Life has made him an "unofficial ambassador" for his state's famous export, says the industry has made an astounding comeback since the 1990s when it was "barely hanging on." No one wants to see those gains go to waste over an unnecessary trade war, he said.
"We've ridden a great wave over the last 20-plus years. Nobody wants to see that wave stop," Rucker told CBC on Monday.
Rucker believes the big-name "heritage" brands will weather the storm, but if the cross-border trade war grinds on it will be the smaller distillers that suffer.
"These smaller players, these guys that spent the time and effort … to get into Canada, it will have an impact on them," he said. "I know a lot of these guys, and it does concern me what's going to happen with them."
Rucker said what distillers really want is for decision-makers on both sides of the border to defuse the situation for the good of the industry, not point fingers at each other.
"If this continues and we start seeing some of these smaller brands unfortunately go under, then … yes, I think there will be some push-back and some dissent. But for now, no, I'm not really seeing that," he said.
"We really don't focus a lot on politics just because it can be divisive, and to me bourbon is something that is made to bring people together."
ABOUT THE AUTHOR
